I’m an unempoloyed teacher who is pursuing my Masters degree, mostly due to fact that teachers are required to take classes to maintain certification.
Anyway, while living in China, my wife and I saved up a petty good amount of money, intending to use it as a down payment on a home. Since I have not gotten a full-time job, we are waiting to purchase a house.
Now, I invested some of the money and used the yield to take one course. It is now time for me to continue with the next class, so I applied for a Student Loan. I figured if the Government pays the interest(while I’m in college), it will be ideal. This is called a subsidized loan.
Based on my forms, I have been offered a Unsubsidized loan. This means I pay the interest while in college, or at least it collects while I’m in college.
A few question:
What is the usual interest rate on a Student Loan. This is the standord Stafford Government loan, where the interest is controlled by the government.
Would it be better to just pay out my savings than take a loan? We hate to see the money disapear, but isn’t spending savings better than acruing even small levels of interest?
We have no problem with credit or anything. We have a stellar credit rating and are aware that student loans are “good credit”. If the interest on a student loan is very low, such as 2%(is that ridiculous?), we wouldn’t mind.
Per Sallie Mae, the current interest rate on a Stafford is 4.7% during school, and 5.3% for repayment periods. The interest rate currently is capped at 8.25%, and interest rates are reset every July 1. Given that interest rates have gone up over the last year, I wouldn’t be surprised to see those rates rise if you’re taking out a loan for the fall.
Here’s how Sallie Mae says rates are calculated:
[ul][li]During in-school, grace, or deferment, rate based on 91 day T-bill rate + 1.70%.[/li][li]During repayment periods, based on 91 day T-bill + 2.30%. [/ul][/li]So I wouldn’t expect rates around 2%. More like 5.5-7%
Do the math; compare the rate of return you get on the money versus the rate you have to pay. If you can invest your money and get higher than a 7% interest rate, it’s probably worth it to take the loan out. You can pay the interest on the loan with the interest you make on your money. Otherwise, no, probably not worth it.
Dude, there is no way I can do higher math for you. But in general, I think if you spend some time on the Sallie Mae site, it may help. From the links above:
In other words, the interest accrues while you’re in school, but isn’t capitalized until after you leave school.
Since that would be your next question.
Basically, as I understand it, interest begins accruing when you take out the loan. Six months after you graduate (or leave school), the interest is then capitalized, which means you aren’t paying interest on interest until after you leave school.
